Falling wheat output, lower global price trigger import surge

From April onwards, wheat prices have gone up in India by 15 per cent

The import of wheat has seen a sharp rise because of an increase in domestic prices over the past few months, owing to falling production and low procurement by government agencies. Some centres in south India have found import viable, despite the 25 per cent duty, as international prices are much lower than those in India.

Initial estimates peg import this year at 2.3 million tonnes (mt), a level not seen since 2009. And, if import duty is cut – as demanded by traders – import could rise up to 3-4 mt this year, say industry sources. Since April, wheat prices in India have risen 15 per cent.

Australian wheat, considered to be of superior quality, is available at $225 a tonne and Ukrainian wheat is available at $195 a tonne. The landed cost of imported wheat (including the 25 per cent duty) is between Rs 1,850 and Rs 2,125 a quintal (depending on quality) against the average price of Rs 2,000 a quintal of wheat liquidated by the Food Corporation of India (FCI) under the Open Market Sales Scheme (OMSS). In the southern states, wheat costs more because of higher transportation charges.

According to FCI officials, demand under OMSS has been exceptionally high this year and 2 mt of the grain has been sold till September 8 under the e-auction of OMSS against a minuscule 358,000 tonnes in the corresponding period a year ago. If the trend continues, there might be difficulty in tackling the situation because demand picks up significantly during and after the festive season (October onwards), said an official, adding that the total annual sale under OMSS last year was 7 mt.

The annual requirement of wheat to be sold through the Public Distribution System (PDS) is 24.5 mt. FCI procured 23 mt this year against the estimated target of 28 mt. The opening stock of wheat as on April 1 was 13.85 mt.

The average annual requirement for PDS and OMSS is 24.5 mt and 7 mt, respectively. Trade estimates predict a higher demand for imported wheat, around 1 mt by the private millers this year as FCI is hand-to-mouth with its wheat stocks.

“We could have imported 3-4 mt as prices are at a rock bottom level in the international market, had the duty been kept at 10 per cent and not revised to 25 per cent,” said an importer, who did not wish to be named. The escalation in wheat price, which has been creating holes in consumers’ as well as millers’ pockets, would have been averted by importing higher quantity at a lesser price,” said the importer quoted above.

Manoj Balgi, head-procurement, Britannia Industries, for the reference said, “Today, availability of wheat in the open market is under strain due to lower production, causing an inflation and impacting the prices of wheat-based packaged food products. As we enter the off season, lower availability will result in scarcity of the stocks resulting in prices going up further. In order to ensure the availability of wheat at a reasonable price, import will remain a strong option for the industry. Government measures indicate lesser stock availability of wheat. This is the highest since 2012, indicating scarcity of wheat in open market. Since the international prices are low, a reduction in the import duty should be considered to make sure that inflation is curtailed and wheat is available to the consumer”

While wheat-using industries have been demanding that the import duty be abolished or rolled back, fresh contracts of 1 mt have been signed recently, according to informed sources.

Edelweiss Agri Research pegs imports for the current season at 2.3 mt (at current rates), which will be revised upwards if import duty is relaxed.

Adi Narayan Gupta, a miller from Uttar Pradesh and a senior member of Roller Flour Millers Association of India, said a relaxation in import duty might have direct implications on the millers in south India due to their proximity to ports. It could have repercussions on millers in other parts of the country as well, as lesser demand will ease out the prices, Gupta added.

According to sources, 500,000 tonnes of wheat were imported last year. This year, 500,000 tonnes of the commodity have already been imported.